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He wrote an opinion piece in Der Spiegel, Germany. György Soros American businessman of Hungarian descent, stating that the European Union needs at least a trillion euros and a common financial instrument. According to him, the solution could be a “perpetual bond” that would never have to be paid.
Remember: Ursula von der Leyen, the president of the European Commission announced on April 23 that the community needs at least a trillion euros to fight the coronavirus.
He didn’t mention it, but a similar amount would be needed to combat climate change, I think there is only one way to raise such amounts: to issue “perpetual annuity bonds” for an indefinite period. The European public and its leaders are unaware of this type of loan, despite the fact that it has a long history. In 1751, Britain issued the first consolidated bonds. They were used to finance the Crimean and Napoleonic Wars, the abolition of slavery, the relief of the Irish famine and the First World War, among others.
Soros explains, who said that the United States Congress approved the issuance of consolidated bonds in 1870 to finance the debts of the civil war.
As the name implies, the loan amount of a long-term bond will never have to be paid, only the annual interest must be paid. A € 1 trillion bond issue would cost the EU € 5 billion a year at interest rates of 0.5%
– he continues, adding that the bonds should not be issued at the same time, but could be sold in several installments. The first would attract long-term professional investors, such as insurance companies. First, the bond could attract professional long-term investors, such as insurance companies. Germany has already managed to sell a 30-year bond with a negative return, Soros adds.
The ratio of annual interest payments to amounts received would be 1: 200. Of course, interest must be paid annually, but the present value of future payments continues to decline, eventually reaching zero. The cost of five billion euros is modest compared to the trillion euros that should be urgently available. The interest burden would be just three percent of the last EU budget, or just over one percent of the EU budget currently under discussion.
He writes.
According to Soros, the issue of this link was not seriously discussed at the April EU summit, although Pedro Sanchez the Spanish prime minister proposed it.
Instead, the debate focused on how much can be mobilized by increasing the next EU budget. After the summit, Leyen was no longer talking about billions, but billions. Something seems to have been derailed painfully.
Soros said the problem may be that when the Treaty of Rome was signed in 1957, it was not envisioned that such an instrument might be necessary, but he sees unusual measures needed at unusual times.
Otherwise, the EU will not be able to meet the current challenges. This is not a theoretical proposal, but a tragic reality. Coronavirus and climate change threaten not only human life but also our civilization. The European Union is particularly vulnerable because it is based on the rule of law and, as is well known, the mills of justice move slowly. But the coronavirus moves quickly and unpredictably. That is why the EU needs quick responses and annuity bonds.
He also argued that perpetual annuity loans should not be confused with crown bonds, as the latter would have been a joint loan from EU countries. Soros said that idea was scrapped for good reason: It would have widened the gap that already existed between northern and southern Europe and divided eastern and western Europe – that is, the old and new EU member states.
Featured Image: Simon Dawson / Bloomberg via Getty Images
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